Mortgage Insurance Premium (MIP) is a kind of insurance on repayment of loan. The insurance is a guarantee if the client defaults. With this insurance, the lender will not suffer from loss of loan. Specifically, MIP is the insurance on loan which is guaranteed by Federal Housing Authority. In this case, FHA as if creates the rules which regard MIP payment by the homeowners. Why MIP is always be recommended to borrowers? Mortgage carries risk. The borrowers might fall on their monthly-payments or default.

Monthly and Upfront Premiums

The loans for houses need high payments. It’s usually 20 percent of total purchase price. With a MIP agreement, the payment with FHA-guaranteed loan drops to 3,5 percent. This percentage will depend on buyers’ qualifications. Mortgage insurance provides some economic benefits like more clients, more active property market, and more qualified clients. Talking more about Mortgage Insurance Premium, monthly and upfront premiums are very familiar. These two sorts may be often mentioned in this article. The most updated info says that FHA requires MIP upfront payment at 1,75 percent of clients’ loans. This amount can be paid as the part of clients’ mortgage loans. What about the monthly premium? A monthly premium or a renewal premium is only 1,2 percent of loan if the loan and house value is equal or less than 95 percent.

MIP Cancelation

The homeowners can cancel their MIP after they have made routine mortgage payments. For 30-year-loan with FHA-guaranteed, the cancelation can be done after 5 years and when the ratio of homeowners’ loans-to-value has reached 78 percent. A house valued $100,000, for instance, FHA-guaranteed mortgage insurance can be cancelled after the value of mortgage principal reaches $78,000. Remember, the period of mortgage insurance premium has passed 5 years. The terms of cancellation vary. For industry, the cancellation is permitted if the client has 20% equity of home. This amount of equity must be based on the newest appraisal of home value.

MIP and PMI are two different sorts?

PMI (Private Mortgage Insurance) is an insurance policy that is used on conventional loan. This type of insurance protects the lender, not the client, from the risk of foreclosure and default. The insurance allows the clients (especially the clients who can’t be able to make down payment) to get mortgage financial support with affordable rates. If the client purchases a new home with less than 20 percent, the lender will reduce the risk by asking him/ her to take PMI agreement from PMI Company. The amount of PMI payment varies. It depends on down payment and loan the client pay off (it’s about 0,5 to 1 percent of total of loan).

There are two options of PMI premium: monthly and upfront premiums. Like its name, a monthly premium is paid per month until the PMI is terminated (the loan balance reaches 78 percent of home value). It can be canceled if the client has adequate equity or the client has reached midpoint of mortgage period (a 30-year-loan, for instance, can reach the midpoint after the client has passed 15 years). An upfront premium is another option you can take. This premium is also called a single premium of PMI. This premium allows you to pay a single upfront-premium or in full sum of money as the mortgage insurance. Such mortgage payment is called lender-paid PMI or LPMI where PMI cost is included in the rate of mortgage interest for the rest of loan life.

On the other hand, Mortgage Insurance Premium is the policy of insurance which is used on FHA loans and it is required if the down payment is less than 20 percent. FHA uses both upfront and monthly premiums. The rate which is paid per month will depend on the length of loan period and LTV (loan-to-value) ratio. Loan with FHA assigned before June 2013, FHA needs you to make monthly premium payment for full five years before MIP can be fallen (if the loan term is more than 15 years). A Mortgage Insurance Premium can be dropped if the balance of loan has touched 78 percent of home value. But if your FHA loan is assigned after June 2013, there are new rules. If your Loan-to-Value is 90 percent or less than 90 percent, MIP payment has to be paid for eleven years. If your Loan-to-Value is more than 90 percent, however, PMI payment can be paid for the rest of loan life.

Losing someone we love is stressful. Without she/ he, it seems like losing a roof over head. If you have family members who are your dependants, it importantly needs to consider the mortgage life insurance. A mortgage life insurance is a type of life insurance which is particularly designed to pay the mortgage if the death comes to you. This kind of mortgage gives you as the life insurance owner a piece of mind that your dependants will get the warranty of life expenses after you leave. Your dependants will receive amounts of financial support to meet their needs.

Types of Mortgage Life Insurance Policy

Life insurance companies provide three kinds of mortgage life insurance: level term, decreasing term, and whole life of mortgage. The policy will depend on each individual circumstances and the payment you select. For more details about each kinds of mortgage life insurance, please read the following information.

  1. Level term mortgage life insurance

Level term mortgage life insurance is the term when your sum which is assured remains fixed for a particular period of time. If you take a policy at $150,000, for instance, this is the payout that will be received by your dependants when you die after taking the plan or when you die in the first year of taking plan, or when you die in the last of year. This kind of term is very useful especially for you who want to leave your dependants an extra financial support after you die. The funds (the mortgage that has been paid to dependants) probably can be used to cover the living costs, school fees/ tuitions, monthly bills, and others.

  • Decreasing term mortgage life insurance

Decreasing term mortgage life insurance is a policy in which the sum reduces in line with the debt of mortgage. This means, since you pay off the debt you owe, the amounts that the client will receive if she/ he dies also will decrease. For example: If in this year, your latest current mortgage is $150,000. This is the amount that will be paid out to your dependants if you die. If in tenth year, the mortgage is $1,000. This is a sum that will be received by your dependants if you die. However, your monthly premiums remain the same along the term of policy. Such kind of policy is usually selected by people who prefer repayment mortgage to regular mortgage. This is not appropriate for those who intend to take the interest of mortgage only.

  • Whole life of mortgage life insurance

This last kind of policy is the most beneficial one for the dependants, not for the client. Why? The policy allows your dependants to receive the payout whenever the client dies. About the premiums, they are more expensive and linked to some investments. That’s why it’s less popular than two other mortgage life insurance policies. When the investments grow slower than expected, the monthly premiums can be higher over time.

Another Extra in Mortgage Life Insurance

If you have made the decision which one mortgage life insurance policy that suits your needs, you probably want to intend to add other financial protections to your selected policy. Critical illness cover is the most popular name of additional insurance form which is included in life insurance. It works when the client suffers a serious illness then she/ he is potential to die before 65 years-old. This form addition will be paid out if you are positively diagnosed one of the listed serious illness, starting from heart attack to cancer. This can cover you during medical treatments. Remember, just particular serious illnesses are covered by such insurance addition. It will be better if you read the printed form carefully before making a decision, so that you understand more exactly about those which are and aren’t covered for.

For your information, if you take a mix life insurance-serious illness policy, you will receive one payout only at the event when the illness attacks or death comes first. This means, when a serious illness attacks you first, life insurance company will pay out you to cover your medical treatment. The company will not pay out anymore on your death. Another extra provided by life insurance companies is wavier of premium. It is added in the beginning of your policy (for all three kinds of policies). This extra is useful when you aren’t able to pay out your monthly premiums due to injury or illness. The company will do paying your premiums to provide the coverings. You, however, usually will be asked to maintain the premiums for few weeks in the first period you aren’t able to work.

Do you have mortgage for your home? It’s likely you need the best mortgage protection insurance. What is actually mortgage protection insurance? In general, mortgage protection insurance is an insurance that covers your monthly mortgage payments at the moment that you become a disable or lose the job. The insurance policies will pay off your full loans when you pass away. The policies will be different from one company to another, so it’s important to you to understand and be more selective in choosing the policies. Be sure to select the policies that offer most appropriate with your financial ability.

In addition, you also have the option of purchasing mortgage protection insurance to your lender. You can also get the mortgage protection insurance from most protection insurers or independent sellers. Shop the best because each company offers different coverage and prices. Sum of mortgage protection insurance varies from individual to individual; and the rate will be based on your health, age, home value, regular payment, and the most current of pay-off mortgage. With several options of policy, your monthly mortgage payments will vary based on your company you work. A roofer, for instance, is higher risk to be disabled than an accountant.

A mortgage protection insurance is totally different to a private mortgage insurance which deals with the lender directly if you default on mortgage and does not bring any benefits for you as the borrower. The mortgage protection insurance gives the protection to you. This is the difference between a mortgage protection insurance and private mortgage insurance. Then, what are the benefits of shopping mortgage protection insurance? Let’s search the answers at the following information.

First, mortgage protection insurance is high in acceptance rates. Few reasons are identified why an insurer can turn you down for mortgage protection insurance. When a lot of people count their disability insurance to cover such costs, some people are getting busy to buy life insurance due to their age or pre-health treatments. If you are in both situations, mortgage protection insurance is the best choice for you.

Second, mortgage protection insurance provides you peace of mind. Everyday people go to work and wonder what will happen to their family and home if they suffer of job loss or become the disabled sufferers. With this kind of protection, you even don’t have such stress because you have warranty that the payments will be purchased if one of those conditions goes to you.

Mortgage protection insurance also has some cons. First, mortgage protection insurance provides maximum payment limitation. If you’re suffering of job loss, your policy won’t provide you sum of money that is equal to your monthly wages. Amount of payment you receive will be determined in your contract policy. Probably it’s not fair at first, but the insurer places this limit to trigger a quick return.

Second, this type of mortgage protection insurance will be balancing your financial condition. This means if you select a low mortgage payment, the mortgage protection insurance is probably not worth the commitment to you. Conventional investmen like collecting the emergency funds can be the cushion to make your monthly insurance premiums during you is disability or unemployment. This idea is great to let you making payments for your insurance premiums.

Third, the mortgage protection insurance can decline the value over time. For example, if you take a $200,000 life insurance policy and still pay off your monthly premiums, your dependants will receive $ 200,000 (regardless of when you die). However, mortgage protection insurance just covers your payoff as much as amount of your mortgage and this amount go down since you keep purchasing it per month. This means, if you posses a home for twenty years and you have purchased $200,000, the amount of your payoff will be declined by now. Even you will probably still be paying the premiums for your mortgage protection insurance. The final word, if you are riskier on job loss or health issue that make disability insurance or life insurance are hard to obtain, it seems that you should select a mortgage protection insurance as your best option. Convince yourself when buying the insurance policies before making your decision. It’s crucial to understand the policy in more details before making commitment. Ask some important things like the policy’s covers, monthly premiums, payout you expect, time when your policy will pay out, and others related to protection insurance services.

Don’t figure out that lender-paid mortgage insurance is the lender will pay out your mortgage insurance and you don’t. The reality is the lender pays the mortgage insurance, indeed, but so you do. Even you have to pay higher mortgage rate. This case is similar to zero cost for refinance in which the lender will pay all closing costs but you deal with higher interest rate. Just look at the following illustration to see the difference:

Your loan amount is $100,000, LTV ratio 90%, and monthly mortgage insurance premium $52. If you take borrower-paid mortgage insurance, it will be:  3,75% x $100,000 = $ 463,12 (3,75% is a rate for a-30-year-loan). Your monthly mortgage insurance will be: $463,12 + $52 = $515,12. This amount will be totally different if you take lender-paid mortgage insurance. The rate of a-30-year-loan for this lender-paid mortgage insurance is 4%, so we can estimate a monthly mortgage insurance by (4% x $ 100,000) + $ 0 = $477, 42. You can see that the second option is cheaper in total monthly payment.

For your information, lender-paid mortgage insurance has both pros and cons. The most obvious advantage is you do not have pay your mortgage insurance premiums per month. This absolutely can decrease the amount of monthly mortgage payment. If you take this mortgage, your monthly mortgage payment will be lower since your mortgage insurance is not required anymore. This can be said that lender-paid mortgage insurance (LPMI) is a money-saver, especially for you who do not have a plan to stay in your home for a long time.

If you are interested in taking this lender-paid mortgage insurance, you have to be a qualified borrower who is able to take larger loan or to purchase more expensive. This seems so fair after seeing that your monthly mortgage insurance payments are lower.  In addition, lender-paid mortgage insurance is good for high LTV ratio owners. If your LTV ratio is just or close to 80%, LPMI may not best choice.

Another benefit of using lender-paid mortgage insurance is that it’s potential for higher tax deduction. Why? Because you have paid higher interest rate per month. That’s very awesome, right?

Something with a bunch of benefits must have some weakness. Lender-paid mortgage also has some weakness. One of obvious weakness is it can’t be canceled. Next weakness, you will be trapped with higher interest rate for the rest of loan’s life. It means that there are much more interest you have to pay. From these weaknesses, it’s important to consider that you have to convince yourself about the mortgage insurance you prefer to choose. You can compare all options of mortgage insurance then determine the best enhancing your needs and financial ability.

How Does Lender-Paid Mortgage Insurance Work?

Using lender-paid mortgage insurance likely changes the main structure of insurance premiums, so that you do not pay a separated charge per month. With this type of mortgage insurance, you pay larger for both upfront mortgage payments per month. This approach is not really common compared to adjustment your mortgage rate. When you pay a sum of money, your lender will calculate and determine the amount of money that can cover the lender’s cost (because the lender is going to buy the mortgage insurance with your money). On the other hand, if you purchase over time, you will pay in higher mortgage rate.

Since the higher mortgage rate means the higher monthly insurance payment, you will end up paying with less money per month if you use this LPMI. But actually the amount of monthly LPMI is less than if you would pay if you get private mortgage insurance separately.

The Alternative over Lender-Paid Mortgage Insurance

There is good news for you who don’t really like lender-paid mortgage insurance. You still have some alternatives you can choose. The first alternative is by making larger Down Payment (at least 20%). Unfortunately, most people don’t realize this option. Second alternative is by paying your own PMI (this is often called BPMI/ Borrower-Paid Mortgage Insurance). The last alternative is by using a piggy-back loan or many people call it 80/20 loan. This type of loan lets you to avoid the mortgage insurance altogether but the second mortgage insurance will come in higher interest rate. If you are able to pay off your second mortgage quickly, you will enjoy getting lower mortgage rate for several years later.